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Office of the City Auditor
Audit of Virginia Beach Sportsplex Contract
Report Date: October 24, 2014
Office of the City Auditor 2401 Courthouse Drive, Room 344
Virginia Beach, Virginia 23456 757.385.5870
“Promoting Accountability and Integrity in City Operations”
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Office of the City Auditor Contact Information
Office of the City Auditor “Promoting Accountability and
Integrity in City Operations”
www.vbgov.com/cityauditor
Office of the City Auditor
2401 Courthouse Drive, Room 344 Virginia Beach, VA 23456
Telephone: 757.385.5870 Fax: 757.385.5875
Fraud, Waste, and Abuse Hotline 757.468.3330
Lyndon Remias, CPA, CIA, CRMA City Auditor Timothy Bell, CICA
Senior Auditor
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Office of the City Auditor Transmittal Letter
i
The Office of the City Auditor is an independent audit function
reporting directly to the Virginia Beach City Council.
Date: October 24, 2014 To: James K. Spore, City Manager Subject:
Audit of Virginia Beach Sportsplex Contract
I am pleased to present the report of our Audit of the Virginia
Beach Sportsplex Contract. Our audit focused on compliance with
contract terms with a focus on payments due from the contractor to
the City. Overall, based on our review, not all contract terms were
complied with but by implementing our recommendations related to
revenue reporting and the submission of required reports will
fulfill contract terms and promote accountability over management
of the Sportsplex and the accompanying Field Hockey Regional
Training Center facility. Findings considered to be of
insignificant risk have been discussed with management. The results
of this audit will be provided to City Council and the City’s Audit
Committee. The Office of the City Auditor reports to City Council
through the City’s Audit Committee and is organizationally
independent of all other City Departments. This report is intended
solely for the information and use of the Audit Committee, City
Council, City Manager, and appropriate management. It is not
intended to be and should not be used by anyone other than these
specified parties. However, this report is a matter of public
record and its distribution is not limited. We would like to thank
the staff of Parks and Recreation and the Sportsplex contractor,
Hometown Sports Management, for their courteous and prompt
assistance during our review. If you have any questions about this
report, or any audit-related issue, I can be reached at 385.5872 or
via email at [email protected]. Respectfully submitted,
Lyndon S. Remias, CPA, CIA, CRMA City Auditor c: City Council
Members Audit Committee Members Cindy Curtis, Deputy City Manager
Michael Kalvort, Director, Department of Parks and Recreation
mailto:[email protected]
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Office of the City Auditor
Table of Contents
ii
The Office of the City Auditor is an independent audit function
reporting directly to the Virginia Beach City Council.
Transmittal Letter
.......................................................................................................................
i Purpose
......................................................................................................................................
1 Scope and
Objectives.................................................................................................................
1 Methodology
.............................................................................................................................
1 Standards
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2 Background
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3 Findings and Recommendations
...............................................................................................
5 Conclusion
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10 Acknowledgements
.................................................................................................................
10 Management’s Response
.....................................................................................
Attachment A
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 1
Purpose The purpose of this audit was to ensure compliance of
the contractor with the Sportsplex and Field Hockey Regional
Training Center contract terms with a focus on payments due from
the contractor to the City. This audit was requested by department
management through the annual risk assessment process performed by
the City Auditor’s Office. Scope and Objectives The objective of
our audit was:
• To ensure adequate procedures and processes are in place to
properly account for Sportsplex and Field Hockey Regional Training
Center revenue and that all required reports were submitted by the
contractor to the Parks and Recreation management.
This audit included the Sportsplex and the Field Hockey Regional
Training Center owned by the City of Virginia Beach and managed via
contractor through management agreements with the City. The audit
covered revenue from Calendar Years 2009 through 2013. Our
fieldwork concluded on September 15, 2014. Methodology To
accomplish our objectives, we performed the following
procedures:
• Reviewed existing Sportsplex and Field Hockey Regional
Training Center contracts related to management of said facilities
to gain an understanding of contract terms.
• Interviewed City’s Parks and Recreation staff and the
contractor for understanding of operations and concerns of both
parties.
• Reviewed revenue documents and required management reports to
determine completeness of report submissions as required by
contract.
• Performed analysis of contractor bank deposits to determine
completeness of revenue received and reported to Parks and
Recreation.
• Independently computed revenue and compared results with
projected revenue and reported revenue.
• Reconciled reported 2013 revenue with contractor’s tax return
reported revenue. • Toured the Sportsplex and Field Hockey Regional
Training Center facilities. • Made recommendations to improve
reporting process and enhance internal controls.
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 2
Standards We conducted this performance audit in accordance with
generally accepted government auditing standards. Those standards
require we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings
and conclusions based on our audit objectives. We believe that the
evidence obtained during this audit provides a reasonable basis for
our findings and conclusions. The Office of the City Auditor
reports to City Council through the Audit Committee and is
organizationally independent of all City Departments. This report
will be distributed to the City’s Audit Committee, City Council,
City Manager, and appropriate management within the City of
Virginia Beach. This report will also be made available to the
public.
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 3
Background Owned by the City of Virginia Beach and leased to
Hometown Sports Management, the Virginia Beach Sportsplex is
comprised of the Sportsplex Stadium, Sportsplex Field Hockey
Regional Training Center, Sportsplex
Criterium, and Sportsplex Athletic Fields. The Sportsplex
Stadium is a 3-level steel and concrete structure with the capacity
to seat 10,000. The Service Level contains ticketing functions,
administration area, souvenir store, team and officials’ dressing
rooms and miscellaneous support spaces. The Concourse Level
consists of a broad spectator walkway leading to the lower seating
deck, plus concessions and restroom areas. The Club Level leads to
the upper seating deck as well as six (6) luxury suites.
The Regional Training Center is one of America’s most well-known
field hockey complexes. Opened in October of 2001, the Center
features two artificial, international, competition-quality turf
fields. Each field has a complex underground irrigation system and
high-powered watering systems that can completely saturate each
field in less than 10 minutes. In addition, the Center features
lighting, locker rooms, parking, equipment room and a concession
stand. Turf time is available for rent for field hockey events,
training camps, clinics and tournaments.
In April 2009, the City executed two contracts (Management
Agreements) with Hometown Sports Management (HSM), LLC for a 16
year lease term to 2025. HSM is responsible for the supervision,
management, scheduling and operation, all facility utilities, and
routine maintenance and repairs of the facilities and parking lots.
HSM is also responsible to conduct at least 35 events per calendar
year at each facility. Parks and Recreation provides the agreement
administration and management. Among the terms of the contracts is
the requirement that HSM will share 5% of annual gross revenue
above $850,000 for the Sportsplex and $400,000 for the Regional
Training Center with the City.
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 4
Once HSM assumed the management of the Sportsplex and the Field
Hockey Regional Training Center, the City benefited by reduced City
operating expenses and it help fund long term capital needs at the
Sportsplex and Regional Training Center. Parks and Recreation’s
annual operating loss of approximately $400,000 was converted to
Capital Improvement Program (CIP) funding. The following Chart 1
shows the amount of CIP funding spent (for FYs 2010 to 2014) and
projected (for FYs 2015 to 2020).
Chart 1 - CIP Spending for Sportsplex and Field Hockey Regional
Training Center
Among other benefits to the City for these management agreements
with HSM are:
• Increased number of events held at these facilities. •
Increased the amount of revenue generated from events. • Increased
the number of partnerships and sponsorships to keep these
facilities viable. • Generated additional tax revenue for the
City:
o ‘Heads in Beds” economic impact. o Personal property, business
license and concessions trustee tax paid in 2013 total
$20,965. • Conversion from natural turf to artificial turf which
expanded programming opportunities. • Contributions made by HSM to
the Princess Anne Commons Athletic Village.
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Sportsplex/Regional Training Center CIP Spending Per Fiscal
Year
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 5
Findings and Recommendations Finding 1: Revenue under-reported
The 2013 annual report of revenue generated at the Sportsplex and
Regional Training Center did not include concession revenue and
revenue from a partnership, RUSH Soccer, totaling $242,890. Per the
management agreements with the contractor, the contractor is
required to submit an itemized report setting forth the amount of
all gross revenue received by the contractor (Manager) for the
previous calendar year and to be certified by the chief financial
officer or chief executive officer of the contractor as to the
accuracy thereof. The itemized report is to include concessions and
any other revenue received by the contractor. As revenues were far
from the revenue sharing threshold levels ($850,000 for the
Sportsplex and $400,000 for the Regional Training Center), the
revenue reporting process was rather informal and sense of accuracy
was not high. Therefore, the annual report of revenue was
incomplete and under-reported for each calendar year. The
management agreement requires concessions to be reported using the
largest of 25% of actual concession revenue or the projected
concession revenue as shown in Exhibit B of the agreement.
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 6
Table 1 below compares the revenue reported in the 2013 Annual
Itemized Revenue Report and adjusted revenue (with concessions and
RUSH revenue) per management agreement with HSM.
Table 1 - Reported Revenue versus Revenue per Contract Terms
*NOTE: Management Fee is for contractor’s role in working a land
transfer deal
for the Virginia Beach Professional Baseball group.
Recommendations We recommend Parks and Recreation management: 1.1
Develop a template for the contractor to use for submitting the
annual itemized revenue
report that would include all revenue especially concessions and
sponsorships.
1.2 Review the annual itemized revenue report submitted by the
contractor to ensure completeness and reasonableness of amounts
reported. Any discrepancies should be immediately resolved with the
contractor.
Reported Revenue PerRevenue Categories Revenues Contract
Difference
SportsplexSponsorships $67,832 $67,832 $0Field Rental $209,030
$209,030 $0Facility Rental $59,020 $59,020 $0Concessions Sportsplex
$0 $103,000 ($103,000)RUSH $0 $75,000 ($75,000)
Sportsplex Totals $335,882 $513,882 ($178,000)Regional Training
CenterSponsorships $9,950 $9,950 $0Field Rental $148,480 $148,480
$0Facility Rental $0 $0 $0Concessions USFHA RTC $0 $64,890
($64,890)Management Fee * $12,500 $12,500 $0
RTC Totals $170,930 $235,820 ($64,890)Overall Totals $506,812
$749,702 ($242,890)
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 7
Finding 2: Reported Revenue does not meet Projected Revenue The
revenue during the 2010 through 2013 calendar years do not meet the
projected revenue stated in the management agreements with the
contractor. Exhibit B of the agreements show projected revenue for
20 years out starting with the 2010. The contractor stated that the
combination of the downturn in the economy and the departure of the
Virginia Destroyers football were some key factors impacting
revenues. As a result, revenue realized fell short of the revenue
sharing threshold. Table 2 below shows the difference in revenue
reported (adjusted for concessions and RUSH revenue) with the
projected revenue of Exhibit B in the management agreements. We do
note that revenues have been rising from the 2010 low point.
Table 2 - Projected Revenue versus Adjusted Revenue
*NOTE: The 2012 Annual Itemized Revenue Report was missing.
Neither the contractor or Parks and Recreation had a copy. See
Finding 3.
Revenue Categories 2010 2011 2012* 2013Adjusted
RevenueSponsorships- Sportsplex $60,307 $121,600 $67,832Field
Rental- Sportsplex $88,862 $125,625 $209,030Facility Rental-
Sportplex $92,600 $54,430 $59,020Concessions Sportsplex $75,000
$90,000 $103,000ATM Machine Commission $275 $480 $0RUSH $0 $0
$75,000
Total - Sportsplex $317,044 $392,135 $0 $513,882Sponsorships-
USFHA RTC $2,086 $7,050 $9,950Field Rental- USFHA RTC $80,278
$100,685 $148,480Facility Rental- USFHA RTC $5,000 $0 $0Concessions
USFHA RTC $53,000 $58,000 $64,890Management Fee $0 $0 $12,500
Total - RTC $140,364 $165,735 $0 $235,820Total- Sportsplex and
RTC $457,408 $557,870 $0 $749,702
Projected Revenues- CombinedSponsorships $275,000 $302,500
$344,578Field Rental $115,000 $140,000 $168,300Concessions
Sportsplex $75,000 $90,000 $103,000Concessions USFHA RTC $53,000
$58,000 $64,890Tournaments $46,000 $54,000 $63,240Events $134,500
$155,600 $193,903
Projected Revenues $698,500 $800,100 $0 $937,911Difference
(Shortfall) ($241,092) ($242,230) ($188,209)
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 8
Chart 2 below shows that the revenue shortfall to projected
revenue is decreasing as time goes on.
Chart 2 - Reported Revenue Shortfall versus Projected
Revenue
Recommendation We recommend Parks and Recreation management: 2.1
Continue to work with the contractor to ensure the Sportsplex and
Field Hockey Regional
Training Center facilities realize maximum revenue
potential.
($300,000)
($250,000)
($200,000)
($150,000)
($100,000)
($50,000)
$02010 2011 2013
Reported Revenue Shortfall versus Projected Revenue
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 9
Finding 3: Required Reports were not Submitted The 2012 annual
itemized revenue report and a number of other required reports were
not prepared and/or submitted by the contractor. Per the management
agreements with the contractor, the contractor is required to
submit an annual itemized report as well as a number of other
reports throughout the year to Parks and Recreation management.
Without the annual itemized revenue reports, Parks and Recreation
management, cannot determine the revenue sharing amount, if any,
due from the contractor. Also, management is hindered from
conducting adequate contract administration without these reports.
Table 3 below lists the required reports.
Table 3 - Required Reports to be submitted to the City per
Management Agreements
We were unable to obtain the following reports from either Parks
and Recreation management or the contractor:
• 2012 Annual Itemized Revenue Report • Upcoming Events Schedule
• Schedule of Events Results (prior to May 2013) • Quarterly
Maintenance Report • Annual Operating Report
SectionFrequency Due Date Number Report Name Description
Monthly or as 5.6 Upcoming Events Updated facility schedules of
events at Sportsplex andrequested Schedule the site.Monthly 10th
calendar day 3.4.B Schedule of Events Events conducted the prior
month at the Sportsplex,
Results and the site, along with attendance for same andnumber
of tickets sold, and any other financial oroperational information
deemed pertinent or asrequested by the City.
Quarterly April 10th 3.4.C Maintenance Listing of all prior 3
months' preventative maintenaceJuly 10th Report and repairs made at
the Sportsplex and the site, along
October 10th with dates of the work, inspections received, and
otherJanuary 10th pertinent information.
Annually March 1st of next 3.3.B Itemized Revenue Sets forth the
amount of all Gross Revenues actuallycalendar year Report received
for the preceding calendar year as of
December 31st.Annually March 1st of next 3.4.B Operating
Itemized report listing the number of events
calendar year Report conducted at the Sportsplex and the site,
attendancefor same, number of tickets sold, other revenuecollected,
taxes paid, and any other pertinent financial oroperational
information.
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Office of the City Auditor Audit of Virginia Beach Sportsplex
Contract
Audit of Virginia Beach Sportsplex Contract Page 10
Recommendation We recommend Parks and Recreation management: 3.1
Develop a process to ensure all required reports are submitted
timely and follow up is
made with the contractor for any missing reports. Conclusion
Overall, based on the results of our audit, the contractor,
Hometown Sports Management, has complied with the terms of the
Management Agreement with the City over the Sportsplex and Field
Hockey Regional Training Center. We do note the revenue reporting
process can be enhanced to improve accountability by implementing
our recommendations related to the reporting all revenue and the
submission of required management reports to the City.
Acknowledgements We would like to thank the management and staff of
the Parks and Recreation Department and the management of Hometown
Sports Management for their courteous and prompt assistance during
our audit.
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jdclarkTypewritten TextAttachment A
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20141024-AUD-Audit Report- Sportsplex Contract-FinalManagement
Response